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Croatia Airlines aims to sell stake for €50 million

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Croatia Airlines "happy" with €50 million for ownership stake

Croatia Airlines’ CEO, Krešimir Kučko, has said the carrier is planning to sell a stake to a strategic partner for fifty million euros. “If someone would want to be considered as a strategic partner, we would be happy with that figure. The key for us is to keep our niche and grow the company”, Mr Kučko said in Zagreb last week. He added, “We have turned the company around. I think investors will be able to see us for what we are: a small and smart air carrier that aptly navigates the global market”. Furthermore, the CEO said the national carrier has good relations with the international consortium Zagreb Airport International Company, which runs Croatia’s busiest airport. According to Mr Kučko, the airline has secured “fair conditions” with the operator.

In late May, the Croatian government formally hired the International Finance Corporation (IFC), the World Bank’s investment arm, to find an investor, after a previous efforts to sell the airline failed in 2013 due to a lack of interest. The majority stake can be sold only to an investor from the European Union, according to EU rules. In March, Assistant Transport Minister, Dan Simonić, said the government was prepared to sell a majority stake in the company, retaining a 25% share in the airline. He added at the time that local pension funds are interested in acquiring 5% - 10% of Croatia Airlines if the government finds a serious strategic partner that will treat the investment as a long-term commitment.

The government has said that a future strategic partner will be required to expand Croatia Airlines' route network and market share, modernise its fleet, further develop its profitable maintenance division and support the development of Zagreb Airport into a regional hub. The IFC is expected to identify potential investors for Croatia Airlines by the end of October. If successful, the sale is expected to be finalised prior to Croatia’s next parliamentary elections, which must be held on or before February 20, 2016. Croatia Airlines is in the final months of a four year restructuring program which has seen the airline return to profitability but also limit its opportunities for growth.

Over 200 people fired since Kucko took over and restructuring started. Now number is around 900, and what you claim to be 70%, is actually 20-30 positions which should be cut. There has been no more welfare from croatian taxpayers for over 2 years now and elections has nothing to do with the OU profitability. Is there any value in this company at all, that you will see until the end of the year, and you're going to be very unpleasently surprised :)

OU needs to cut number of management positions by half, and let off few more staff, ideal size for OU is around 800 staff, naturally once OU hits 20 aircraft it'll have to hire 400 additional staff.

OU is getting there, at least hey recognize the fact that they need to make Zagreb airport more important that it was so far, right now international carriers at Zagreb control 43% of airport's traffic (2014 result), 2015 might see this %g go up to 50%, OU is loosing market share at home, things don't look great unless OU starts to expand and offer more choice of destinations.

Why do they insist that ZAG must be a regional hub? Literally one of the worst places for a hub. They face all the problems that JU is having, but on a bigger scale. Airport of two and a half million, country with high traffic seasonality, fragmented market with 6+ airports.

It would be better to completely change the network to "point to point" traffic on a LCC model. Make turnaround times be 30 minutes, no connections. Bases at all the coastal airports. Attract holidaymakers with cheap fares.

Have the core Airbus fleet, then also buy a few 20 year old airbuses for cheap to fly during the summer only.

Most of the airline traffic to Croatia is either leisure or diaspora. They look for cheap fares, and it doesn't matter to them if frequency is 3-4 times per week.

Why wouldn't they strive to be a regional hub? You aim for the highest possible goal.

If and when Croatia Airlines gets sold and if it is a serious buyer, Air Serbia will have a lot competition on its hands. Because apart from creating a good network from Zagreb (which is not prone to seasonality so much) you will have all those things you said - tourism, many airports etc plus your country is in the EU. Air Serbia got a head start and was lucky that Croatia Airlines was in restructuring. It should have expanded more aggressively before it becomes too late.

Those routes for sure are not questionable. But, in* Skopje* Podgorica* Priština* Tirana* maybe Ohrid and Tivat they have to compete with Air Serbia and it is all about mathematics

You can see that even Air Serbia is not doing well in third markets like Tel Aviv, Beirut, Budapest, Warsaw, Varna... so it is all about exYu basically. In that case Zagreb has very good chance especially that Adriatic routes are well done in summer (32 frequencies with more than 90% LF) and in winder they are OK because there is almost no alternative to Zagreb. That is much better starting position than Belgrade. Mostar, Sarajevo, Podgorica and Tivat have much better deviation via ZAG to central, west and north Europe and cost of those flights are smaller via ZAG than BEG. Also ZAG has much more tourists than BEG, bigger GDP and trade, Croatia is in EU... The only thing that is missing here is good company. And that can be changed with good investor. If not Zagreb has no chance compare to Belgrade. But if yes, Belgrade and Air Serbia will have huge competition in Zagreb with much bigger chance on Zagreb side.

@11:54I'm not sure if Zagreb has more tourists than Belgrade. Could you give me the source?Btw I doubt they can do anything before te new terminal at ZAG opens, and that will be in 2017. By that time Air Serbia will probably have flights to the US and maybe Canada, and I really don't think there are chances for someone introducing flights from ZAG to North America as exYu market is not so huge that both ZAG and BEG could have those flights. Between 2018 and 2020 ten new airplanes will be delivered to Air Serbia, so it's logical that they will launch new routes, I doubt both OU and ZAG can overtake ASL and BEG.

British Airways, Air France, KLM, TAP, Iberia, Brussels Airlines from september, SkyGreece in few days, Korean to turn charters into scheduled, all those airlines see the potential in ZAG, so many times here we read that OU is limiting ZAG growth, and despite all this Aleksandar Stojanovic is trying to convince us that ZAG has no potential even to think about being some kind og hub for the south-eastern Europe. Well, let's just wait few years and see who was right : all those airlines and their managers, or mr. Aleksandar

@1:15It's absolutely impossible for ZAG to overtake BEG. And course OU isn't limiting ZAG growth when it isn't able to do it. If OU doesn't find some strategic partner I doubt it will survive in the next few years.

Actually it is well known fact Zagreb has more tourists than Belgrade, Zagreb has same number of tourists as entire Serbia, If you exclude day visitors that is. Zagreb had 1.75 million overnights in 2014 and 1 million visitors, if you add day visitors from Austria, Hungary, Slovenia, Germany, Italy, you end up with 2.7 million visitors and city recorded revenue or around $520 million in 2014. This number is set to rise across the board, yoy Growth is 15% for first 4 months this year year, 1.1 million tourists are expected and nearly 2 million nights, add day visitors 3 million mark can be achieved this year.

BTW, Many day visitors visit Zagreb on their way to the coast or on their way back from the coast.

We should wait for October and see if IFC found any potential investors for OU, I think a good investor would be good news for Ex-Yu passengers who could choose between Air Serbia and Croatia Airlines for some destinations! Anyway, wish OU good luck!

Okay, looks like I hit a nerve when I said that Croatia Airlines should not strive to become a hub.

There is no hierarchy in airline business models, being a hub airline isn't some kind of top quest that all airlines should strive for. There are other business models that can be successful, and in CTN's case, I think that having a route structure that favors point to point traffic rather than transfer traffic is more favorable.

Running a hub operation is very expensive:-Requires extra staff to cover waves-Requires smaller planes and higher frequency-Requires keeping unprofitable routes to maintain a network-Requires longer aircraft turn around time because here is a need for carefully planned waves-Transfer passengers are remarkably low yielding

Because of all this, Croatia Airlines has one of the highest costs per air seat mile in Europe.

At the end of the day, the volume and yield of transfer traffic that is flown by Croatia Airlines does not cover the additional costs incurred by having a hub operation, and then these costs are transferred to the O/D passengers. Because of this, lots of people are avoiding flying from ZAG because it is more expensive than competing airports.

So what kind of business model could be better? Just like Wizz Air is flying from every village in Romania, And they are doing it profitably, so should Croatia airlines make bases from coastal airports. Lots of the routes would be 2-3 times per week, but it won't matter because leisure and diaspora traffic isn't time sensitive, but they are very price sensitive.

So, my conclusion is: hub operations are rather expensive to run, by reducing frequency, moving to larger planes, and cutting out waves from network, CTN could cut costs drastically and offer much cheaper fares to O/D traffic. This would stimulate passenger demand, and overall increase the number of passengers carried.

What is really important to add here is not only the number, but the STRUCTURE of the guests/tourists/passengers in Belgrade and Zagreb : While most of the tourists in Belgrade are form neighbouring ex-Yu countries, and use ground transportation to come to Belgrade, Zagreb is not only bigger by numbers, but tourists to Zagreb are mostly West-European, North American and Fer Eastern, and 90 % of them use plane to come to ZAG

Please stop making a fool out of yourself. If your 90% of tourists were coming by air, it would mean that Zagreb generates barely enough O&D passengers to surpass Pristina or Skopje so choose which of the two you want to be the true.

Anonymous:They do come from Asia to see Zagreb. Especially Koreans. It is good work of Zagreb tourist board, several TV shows that was broadcast in Korea and those were filmed in Croatia and Zagreb, product that they have in Zagreb (not just sightseeing but also events, visiting countryside including "happening on farm" with domestic food, folk dance, local orchestras etc.)...

Tarom is also being sold and they are specifically looking for Middle Eastern carriers or TK. If say QR was looking into both Tarom and Croatian Airlines but then decide only to buy one company, what would be the more likely candidate?

Not related to ex yu but bit of EY info for anyone interested. EY is suspending Yerevan, and has cancelled plans to launch Baku and Tiblisi. It also reduced Lagos and one other destination. Also in March their LF on DFW route was 37%, which proves that other big airlines are also struggling on some routes.

That's very sad that Etihad is giving up on the Caucasus. Seems that the market's relative immaturity, strong competition and the global economic climate aren't in favour of such a move at the moment. Still, Yerevan was the weakest link in the chain, i do expect from them to open at least Baku in the next few years or as tag-on from Tbilisi as Qatar is operating it rather successfully (full loads last winter on all legs). I guess this also indicates that it is still quite premature for Air Serbia to open any of those routes with the exception of Baku.

“Air Berlin and Alitalia operate transatlantic flights, so we have no need to use fifth-freedom rights,”

That pretty much excludes EY from flying AUH-BEG-USA, esp with current US3-ME3 row. On the other hand, it also indirectly points to Air Serbia as a next carrier of choice for future TATL expansion among European EY partners. Nice!

Article also says "Although several of the United Arab Emirates’ (UAE) air services agreements allow Etihad fifth-freedom rights, the carrier has no plans to exercise those rights". In regards to AB and AZ, he said "The two carriers also are building their route structures to Abu Dhabi, giving Etihad increased connectivity to the transatlantic market".

Similar will be true for Air Serbia once they start TATL flights. For example, Etihad does not and can not fly daily from AUH to YYZ, while Air Serbia could complement that offering by allowing Ethidad passengers to connect through Belgrade onwards to Toronto on days when EY does not fly to YYZ.

Questions were posted after Serbia-USA bilateral agreement if Etihad could use it to fly Abu Dhabi - Belgrade - JFK or some other destination. This quote from Hogan clarifies that EY won't do it.

That leaves some US carrier or Air Serbia as future TATL carrier from Belgrade. It is unlikely any US carrier wants to fly the route, so that (and previous statements from Hogan) leave Air Serbia as a next choice.

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